Changes to the way universities are funded will cost the economy six times
more than any savings the Government makes, new figures suggest.

The Treasury expects to save £1.17bn by moving to higher tuition fees and ending subsidies for teaching.

But the loss of potential earning power – as students choose not to take a degree – and the impact of fees on inflation will increase public borrowing by an extra £3.6bn, the university think-tank million+ said.

In addition, by lowering worker skills, the economy will lose an estimated £3.4bn of potential output. In total, the decision to raise tuition fees will cost 6.5 times more in today’s money than the Treasury’s estimated cash savings in 2012-2013, million+’s research found.

“The real question is how to maintain a thriving, efficient higher education system which is good for students, good for universities and good for the taxpayer. Once the total economic costs are taken into account, the jury has to be out as to whether the Government’s reforms are the most cost-effective way of funding higher education.”

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The analysis, by London Economics for million+, found that higher fees will add 0.24 percentage to the consumer prices index of inflation. Sir Mervyn King, the Bank of England Governor, last week criticised the Government for scoring an “own goal” with policies such as tuition fees that are putting households under increasing strain from rising prices.

A third of English universities are charging the maximum £9,000 for a degree, according to the Office for Fair Access. Around three in four charge the top rate for at least one degree course.

Ministers had originally claimed that universities would be allowed to charge over £6,000, and up to £9,000, only in “exceptional circumstances”.

The new framework will mean the graduate intake of 2012-2013 will shoulder £1.46bn more in costs than those who entered university in 2010-2011. The figure includes the “up-front costs of higher tuition fees, all forms of student support, as well as the longer-term subsidies and write-offs on loans in the 30 years following graduation”, million+ said.